A federal judge in Texas ruled Aug. 20 that the Federal Trade Commission’s ban on most non-compete agreements used in business exceeded the commission’s authority and prevented the rule from taking effect next month
The ban had been challenged by the US Chamber of Commerce and other business organizations, including the Associated Builders and Contractors (ABC), in federal court in Dallas.
Judge Ada Brown had granted the plaintiffs in the case in July, Ryan v. Federal Trade Commissiona temporary injunction against the enforcement of the ban.
Citing the Federal Administrative Procedure Act, a law that allows a reviewing court to overturn agency actions, Brown described the ban as an unconstitutional exercise of power that was also arbitrary and capricious.
The FTC’s ban had exempted top executives, as well as situations such as the sale of a company.
ABC said in a statement that the association was “extremely pleased with the court’s decision and has consistently maintained that ABC members have valid business justifications for using non-compete agreements, such as protecting confidential information and intellectual property intellectual”.
“The new rule would have had a detrimental effect on both member companies and their employees, forcing employers to rework their compensation and talent strategy,” ABC added.
Brint Ryan, CEO of the Dallas-based tax consulting firm that first challenged the FTC’s ban, wrote that “Noncompetence serves as a cornerstone of mutual trust between employer and employee.”
FTC officials estimate that about 30 million US workers are subject to a non-compete clause or agreement.
North American construction unions had supported the proposal, saying such agreements “artificially depress wages, reduce labor market mobility, and interfere with employees’ ability to improve their working conditions and wages by organizing- yes”.
The Federal Trade Commission had issued a final rule on April 23 after FTC commissioners voted 3-2 to approve it.
